IKEA SWOT Analysis

SWOT is an acronym for strengths, weaknesses, opportunities and threats related to organizations. The following table illustrates IKEA SWOT analysis:

Strengths

1.      Market leadership

2.      Democratic design concept

3.      Competency in cost-cutting through innovation

4.      Solid financial position

5.      Vast, yet focused product range

Weaknesses

1.      Weak presence in Asia

2.      Damaged reputation due to a series of incidents

3.      Competitive advantage difficult to sustain

4.      Lack of differentiation of IKEA products and services

5.      Lack of flexibility due to large size

Opportunities

1.      Increasing emphasis on CSR

2.      Increasing presence in developing countries

3.      Formation of strategic collaborations

4.      Adding premium range of products into portfolio

5.      Strengthening cost leadership competitive advantage through technological innovation

Threats

1.      Decline in demand due to increase in consumer income

2.      Unsustainability of ‘democratic design’ concept

3.      Emergence of competition from Asia

4.      Increasing costs of raw materials

5.      Global economic and financial crisis

IKEA SWOT analysis

Strengths

1. IKEA is a world’s largest furniture retailer and it is well positioned to achieve its target of EUR 50 billion annual sales by 2020.[1] IKEA has 340 stores in 28 markets, 22 Pick-up and Order Points in 11 countries, 41 Shopping Centres in 15 countries and 38 Distribution sites in 18 countries globally. In FY2016, IKEA attracted 783 million store visits and 425 million shopping centre visitors.[2]

Moreover, according to “Brandz Top 100 Most Valuable Global Brands 2016”, IKEA is the fifth most valuable retailer in the world and it is also the most valuable furniture retailer brand in the world, with the value of more than USD 18 billion. The current leadership position of the company provides substantial advantages in terms of the economies of scale and at the same time creating a substantial entry barrier for new competitors.

2. IKEA has developed the notion of democratic design which implies achieving an attractive form, quality, function and sustainability at a low price. The company attempts to integrate this notion to all of its products. Consistently increasing revenues of the business is an indication of successful outcome of such attempts. IKEA employs more than 1,000 designers globally who operate under democratic design culture and implement the concept in practice on a daily basis. The home improvement and furnishing chain also organizes annual democratic design days to build upon its success with positive implications on the bottom line.

3. IKEA has been able to deliver attractively designed products at low costs thanks to its product innovation capabilities. Innovations by IKEA play an instrumental role in terms of achieving democratic design as discussed above. The company has an innovation lab dubbed Space 10 in Copenhagen which conducts a wide range of futuristic projects such as 3D-printed meatballs, urban farming, energy-harvesting furniture and air-improving windows.[3] The list of innovative products introduced by IKEA include, but not limited to Vava lamps made of leaves, adhesive-free furnishings, severed seat storage, building block kitchens, flat-pack funerals etc.

4. In financial year of 2016, IKEA Group generated sales of EUR 34.2 billion. Together with the rental income from the shopping centre business (IKEA Centres), total revenue increased by 7.4 per cent to EUR 35.1 billion. The company’s net profit for the same period amounted to EUR 4.2 billion.[4] Thanks to its solid financial position, the company is able to commit to considerable R&D expenses to further strengthen its presence in the global marketplace. Moreover, IKEA’s financial strengths can play an important role of cushion in times of recessions and decline in demand.

5. IKEA offers about 9500 products, yet apart from shopping center business in Russia and food products, IKEA product portfolio is efficiently focused. Specifically, the company offers a wide range of furniture and home appliances products that share the common set of features such as innovative design, low price and a high level of practicality. Moreover, IKEA stays up-to-date with changes in customer needs and preferences. Starting from recently, the company started to manufacture home solar batteries to compete with Tesla.[5] Highly focused pattern of IKEA product portfolio increases the effectiveness of brand identity with positive implications on consumer loyalty.

Weaknesses

1. During FY2016 only 9 per cent of global sales were generated in Asia and Australia region, at the same time when 69 per cent of sales were generated in Europe’s saturating market[6] (see figure below). Taking into account rapidly expanding economies of Asian region and prolonging economic stagnation in Europe, it can be argued that IKEA’s current weak presence in Asian market might weaken the share of the business in the global marketplace in medium-term perspective.

IKEA SWOT analysis

IKEA Group sales per region[7]

2. IKEA brand image is yet to fully recover from a series of ethics-related incidents the company had to deal with in 2012 and 2013. The most controversial incidents include using Photoshop to alter the images of women in its Saudi Arabia catalogue in September 2012. Revelations by Ernst & Young in the same year that IKEA did have businesses with suppliers based in communist East Germany 30 years ago that used forced labour to produce IKEA products also considerably weakened the brand image.

Furthermore, in February 2013 IKEA had to recall its meatballs after it was found that some of them contained traces of horse meat.[8] More recently, the global furniture retailer has been accused of avoiding EUR 1 billion taxes according to a report the European parliament.[9] These and other similar incidents have weakened IKEA’s brand image to a considerable extent.

IKEA Group Report contains a full version of IKEA SWOT Analysis. The report illustrates the application of the major analytical strategic frameworks in business studies such as PESTEL, Porter’s Five Forces, Value Chain analysis and McKinsey 7S Model on IKEA. Moreover, the report contains analyses of IKEA leadership, organizational structure, business strategy and organizational culture. The report also comprises discussions of IKEA marketing strategy and addresses issues of corporate social responsibility.

IKEA Group Report

[1] Gustafsson, K. (2015) “IKEA Gains Global Furniture Market Share on Price Cuts” Bloomberg Business, Available at: http://www.bloomberg.com/news/articles/2015-01-28/ikea-gains-global-furniture-market-share-on-price-reductions

[2] Group Yearly Summary (2016) IKEA Group

[3] Le Pluart (2016) “IKEA Secret Innovation Lab” IKEA, Available at: http://www.ikea.com/ms/en_US/this-is-ikea/ikea-highlights/IKEA-secret-innovation-lab/index.html

[4] Group Yearly Summary (2016) IKEA Group

[5] Lynch, P. (2017) “IKEA Launches Home Solar Battery to Take on Tesla” Arch Daily, Available at: http://www.archdaily.com/877115/ikea-launches-home-solar-battery-to-take-on-tesla

[6] Yearly Summary 2014, IKEA Group

[7] Group Yearly Summary (2016) IKEA Group

[8]Business Insider (2013) Available at: http://www.businessinsider.com/ikeas-reputation-has-taken-a-beating-2013-3

[9] Shen, L. (2016) “Ikea Has Been Accused of Avoiding 1 Billion Euros in Taxes” Fortune, Available at: http://fortune.com/2016/02/12/ikea-tax-avoidance/